Beijing's long-awaited implementation this month of a national benchmark power price for solar power projects will create a mini boom in panel installations on the mainland next year, according to a major solar panel component maker.
However, component makers' profitability will depend on their ability to cut costs as product prices will fall further as solar power is expected to become as price-competitive as fossil fuel-generated power without subsidies in the next few years, said Tan Wenhua, chairman of Liaoning-based Solargiga Energy Holdings.
A 30 per cent product price plunge in the second quarter due to oversupply and subsidy cuts in Europe, which took up 80 per cent of global panel installations, sent the industry to 'an even worse slump than during the 2009 financial crisis', Tan said.
'But on the mainland, a mini boom is already in the making. Next year's installation will certainly surpass 2,000 mega-watt,' he said.
Chief executive Hsu You Yuan expected installations this year to reach 1,000 MW. The mainland accounted for only 3 per cent of the world's total solar-power panel installation last year.
Beijing early this month announced that solar farms approved before July 1 and completed before the end of the year will be allowed to charge 1.15 yuan (HK$1.40)/kWh of power sales. Those approved on or after July 1, or those approved by that day but not completed by year end, can charge one yuan/kWh.
This is China's first roll-out in the solar sector of so-called 'feed-in tariffs', a form of subsidy already popular in developed nations. It will drive developers to maximise their profit by building solar farms in regions with the best solar resources, mainly in northern and western China. In southern regions where sunshine hours are shorter, extra incentives from local governments, usually in the form of higher power prices, are needed to induce investment.
Previously, Beijing held project tenders in a bid to find some reference for setting a tariff level that would give developers reasonable returns. But biddings were dominated by state firms eager to meet state requirements to have certain portions of their installed capacity fuelled by renewable energy. The winning bids were significantly below one yuan/kWh of power to be sold and were widely seen to be loss-making.
Solargiga on Wednesday posted a 174 per cent year-on-year jump in net profit to HK$112.8 million for the year's first-half, as sales grew 60 per cent to 1.27 billion yuan. Its gross profit margin rose to 22.5 per cent from 12 per cent as costs reductions exceeded product price falls.